AgriBank’s credit quality reflects the overall financial strength of District Associations and their underlying portfolios of retail loans, which generally have been supported by improved commodity prices and government payments. AgriBank’s portfolio was composed of 99.4 percent loans classified as acceptable as of March 31, 2021, compared to 99.3 percent acceptable as of December 31, 2020. Loans classified as acceptable represent the highest-quality assets. The credit quality of AgriBank’s retail loan portfolio (accounting for approximately 10 percent of the total loan portfolio) increased to 94.5 percent classified as acceptable at March 31, 2021, compared to 94.0 percent acceptable at December 31, 2020. The improvement in the acceptable percentage of the retail portfolio was primarily the result of upgrades in lower quality real estate volume and increases in higher quality agribusiness volume, when compared to the year ended 2020. Total loans were $110.9 billion at March 31, 2021, an increase of $1.1 billion, or 1.0 percent, compared to December 31, 2020. This increase was primarily due to a rise in wholesale volume which was driven by growth in real estate mortgage volume at District Associations, as targeted marketing efforts have stimulated growth during the first quarter of 2021. Also contributing to the overall increase in wholesale loans were draws on agribusiness loans at District Associations resulting in increased funds disbursed to borrowers to help meet liquidity needs related to increases in commodity prices. The COVID-19 pandemic has persisted into 2021 and continues to adversely impact some sectors of the worldwide economy. However, as public health measures have been implemented to limit the spread of the virus, including the availability of vaccines, many locations across the United States have been able to lift some restrictions. The overall economy has begun to recover, and the outlook is positive for many sectors, including agriculture. AgriBank continues to operate in a remote capacity without interruption to business operations.
Net interest income was $181.0 million for the quarter ended March 31, 2021, a decrease of $10.1 million, or 5.3 percent, compared to $191.2 million for the same period of the prior year. Net interest income was positively impacted by increased loan volume, which was more than offset by the impact of changes in rates. AgriBank intentionally reduced the spread charged, primarily on wholesale loans, in 2021, consistent with its business model. Additionally, spreads on investments compressed. The decline in asset yields slightly outpaced the reduction in debt yields year-over-year, reflecting significant call activity in first quarter 2020. Net income was strong at $193.0 million for the three months ended March 31, 2021.
Non-interest income was $48.6 million for the quarter ended March 31, 2021, a decrease of $20.4 million, or 29.6 percent, compared to $69.1 million for the prior year. This decrease was primarily driven by lower conversion fee income. AgriBank experienced significant conversion activity in the prior year due to steep decline in interest rates coupled with the uncertainty of the COVID-19 pandemic. While conversion activity continues, it has slowed as interest rates have begun to increase. First Quarter 2021 Results of Operations
Total capital remained very strong at $6.7 billion as of March 31, 2021, an increase of $148.1 million compared to December 31, 2020. This increase was driven primarily by net income and net stock issuances, which was reduced by cash patronage distributions declared, consistent with AgriBank’s capital plan. AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers. Cash and investments totaled $19.8 billion at March 31, 2021 and December 31, 2020. AgriBank’s end-of-the-period liquidity position represented 169 days coverage of maturing debt obligations, which supports operational demands, and was well above the 90-day minimum established by AgriBank’s regulator. Capital Resources and Liquidity
The outlook for agriculture has improved remarkably since the second quarter of 2020. A recovering economy and supportive market fundamentals are driving prices higher for many commodities. However, COVID-19 infection rates (including potential outbreaks in animal processing plants and new, more virulent strains) along with weather, trade, government policy and global agricultural production levels may keep agriculture market volatility elevated for the next 12 months. Adoption of cost-saving technologies, marketing methods and risk management strategies will continue to cause a wide range of results among the respective producers. The U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) released its initial forecast of the U.S. aggregate farm income and financial conditions for 2021 on February 5. The release also contained the revised estimates for 2020. Net farm income for 2021 is forecast to decline for the first time in five years to $111.4 billion, down $9.8 billion, or 8.1 percent, from the latest 2020 estimate of $121.1 billion. If realized, the 2021 forecast would still mark the second-highest net farm income level in the past seven years in nominal terms, and would surpass the 20-year average-inflation-adjusted net farm income level of $94.6 billion by $16.8 billion, or 17.8 percent.
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